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Retail is a losing concern

So we see Macy’s and Wal-Mart come out with earnings from the holiday quarter Tuesday morning.

And while both did better than the Street expected on the bottom line, sales and revenue were lower than the year prior and lower than projections.

The balance sheet machinations to get to a better earnings per share are getting more and more difficult for brick and mortar retailers as the shopper is moving out of the mall and onto the web.

As outlined on the conference call, Macy’s CEO Terry Lundgren said the retailer is moving closer and closer to becoming a REIT (real estate investment trust) instead of an owner of properties that sell merchandise.

“We are excited by the potential of our real estate strategy, and in 2017, we will focus on advancing the Brookfield partnership and continuing to monetize the locations that we have closed or plan to close,” said Lundgren. Macy’s 34th Street Herald Square location is the crown jewel of the franchise and could be leveraged to keep the lights on longer for the company.

However in 2016, the value of Macy’s real estate may have eclipsed the worth of it as an ongoing retail concern, but that will soon become very challenging as malls across the US become shuttered as retail chains shut locations. Macy’s itself is part of the problem as it has announced it will close very soon 68 locations.

This is the death knell for those malls as the biggest anchor tenant at the end of the mall is dark. And if the other end had a Sears or JC Penney it too could be dark as well.

If you follow the commercial mortgage-backed securities, you will see the deterioration of the market for retail malls, especially Class B or C malls. Many middle of the mall retailers are feeling even greater pain as teen retailers shutter as well.

If the consumer sees greater value, which they need right now as wage growth is non-existent, then the idea of a mall every 10 miles or so in America will be another relic of the past.